Germany's Coalition Agreement: A "Lowest Common Denominator" Deal

 Germany's Coalition Agreement: A "Lowest Common Denominator" Deal

by Soeren Kern

November 30, 2021 at 5:00 am

It remains to be seen how long the new government — to be formed by a fractious three-way coalition consisting of the center-left Social Democrats (SPD), the environmentalist Greens and the pro-business Free Democrats (FDP) — will last.

Olaf Scholz has said that the new government will not seek "the lowest common denominator" but its coalition agreement appears to be just that. Far from ending the Merkel era, the next government may end up being a continuation of it.

"When it comes to money, the coalition agreement lacks specifics. It is completely unknown how the coalition will finance all of its plans." — Michael Hüther, Director, German Economic Institute.

"In future, the task of the police is no longer to prosecute and prevent criminal offenses, but to give politically correct preference to certain groups of offenders.... Reality is a foreign word. Inflation? Crisis on the Polish border? Energy shortages? Unemployment? Budget deficits? Not an issue. The main thing is that grazing animals and humans make room for the wolf." — Roland Tichy, German commentator.

"In reality, none of them really agrees on anything very much except that they think it is about time they had a go at running a ministry or two." — Michael Lynn, The Spectator.

"If this all sounds lacking in ambition, that's because it is.... Germans voted as if they want a government that would sit out major arguments about the country's economic or strategic direction." — Editorial Board, Wall Street Journal.

"Perhaps the biggest worry about the new coalition is that it may spend too much of its time arguing." — The Economist.

Olaf Scholz, who narrowly won Germany's general elections in September, has said that his new government will not seek "the lowest common denominator," but its coalition agreement appears to be just that. Far from ending the Merkel era, the next government may end up being a continuation of it. Pictured: Party leaders of the coalition (from L to R) Christian Lindner of the Free Democrats, Olaf Scholz of the Social Democrats, and Annalene Baerbock and Robert Habeck of the Greens, on November 24, 2021 in Berlin. (Photo by Sean Gallup/Getty Images)

The three parties planning to form a new federal government in Germany have presented a coalition agreement that is to serve as a pre-agreed policy roadmap for the next four years.

The platform for the new government indicates there will be little substantive change from the policies pursued by outgoing Chancellor Angela Merkel.

The lack of bold fresh ideas is the direct consequence of an inconclusive election in September and that the parties seeking to form a new government are ideological rivals that do not agree on almost anything.

Germany's current finance minister, Olaf Scholz, who narrowly won the general elections on September 26, is expected to be inaugurated as chancellor in the first week of December.

It remains to be seen how long the new government — to be formed by a fractious three-way coalition consisting of the center-left Social Democrats (SPD), the environmentalist Greens and the pro-business Free Democrats (FDP) — will last.

The 178-page coalition agreement, presented in Berlin on November 24, was finalized after two months of haggling (negotiators reportedly spent "hours" debating single sentences). It contains eight main sections that focus on a panoply of domestic and foreign policy issues to be pursued over the next four years.

The document indicates that the next federal government will prioritize domestic issues, such as modernization, digitalization, and the environment. The agreement, which promises a "decade of future investments," is vague on how much such plans will cost. It does not envision higher federal borrowing or tax increases, so it remains unclear how such investments will be financed.

The agreement calls for phasing out coal-fired power plants by 2030, eight years earlier than previously planned, becoming carbon neutral within a generation, and installing solar panels on "all suitable roof surfaces." It pledges to increase the minimum wage, build 400,000 new homes each year, and legalize cannabis.

In a section on the environment and nature protection, the document states: "We are committed to consistent insect protection.... Our goal is to organize the coexistence of grazing animals, humans and wolves...."

On immigration, the new government will make it easier for refugees to bring family members to Germany. Asylum seekers will be able to apply for jobs. Those seeking German citizenship will no longer be required to renounce other citizenships.

The document is replete with so-called progressive rhetoric including calls for "introducing a holistic diversity strategy with specific funding measures, targets and measures for cultural change."

In foreign policy, the document promises a "feminist" foreign policy to ensure more inclusive perspectives, but, with few exceptions, it also calls for a continuation of the policies pursued by Merkel.

The agreement calls for transforming the European Union into "a federal European state." It states that the EU's foreign policy chief should be given real power as a bona fide EU foreign minister to represent the bloc on the world stage. The document does not say how such a plan, which entails abolishing sovereign nation states, will be implemented. Such reforms to the EU would require unanimous support from the EU's other 26 member states. This is unlikely to happen.

The document states that NATO and the transatlantic alliance will remain the foundation of German security but fails to commit to NATO's defense-spending target of 2% of GDP. The coalition agreed that Germany will remain part of NATO's nuclear sharing agreement. Germany hosts U.S. nuclear weapons that German fighter jets are to carry for nuclear missions for NATO.

The SPD and Greens have long called for the removal of U.S. nuclear weapons from German soil. NATO Secretary-General Jens Stoltenberg recently said that the weapons might be moved further east if Germany dropped out of the nuclear sharing deal — a move that would anger Russia. The coalition agreement states: "As long as nuclear weapons play a role in NATO's strategic concept, Germany has an interest in participating in strategic discussions and planning processes."

On the Middle East, the document states that while Israel's security will be a priority (Staatsräson), the coalition government will emphasize the so-called two-state solution and the establishment of a Palestinian state. The SPD and Greens are frequent critics of Israel, while the FDP has been a staunch defender of the Jewish state.

The agreement also states that Germany will increase its contributions to the United Nations Relief and Works Agency (UNRWA) for so-called Palestinian refugees. Educational textbooks produced by UNRWA have been found to be openly anti-Semitic and encourage violence, jihad and martyrdom.

The agreement states that the coalition will be committed to the Iran nuclear deal and calls for Tehran's full compliance with its obligations to the International Atomic Energy Agency (IAEA).

The new government will seek "substantive and stable" relations with Russia and "constructive dialogue" with Moscow on climate and environmental issues. It calls for Russia to end its "destabilization efforts" in Belarus and Ukraine. At the same time, the new government wants to eliminate visa requirements for Russians who wish to travel to Germany. The Greens have been outspoken opponents of the controversial Nord Stream 2 gas pipeline while the Social Democrats support the pipeline. It remains unclear how the coalition partners will reconcile this rift.

The document calls for a collective EU China policy that is coordinated with the United States. It also bizarrely states that "within the framework of a One-China Policy" it would support Taiwan's membership in international organizations.

Olaf Scholz has said that the new government will not seek "the lowest common denominator" but its coalition agreement appears to be just that. Far from ending the Merkel era, the next government may end up being a continuation of it.

In terms of the distribution of ministerial posts, the SPD will receive seven, including the chancellery and the interior and defense ministries. The Greens will appoint the next vice-chancellor and get five ministries, including the foreign ministry. The FDP will receive four ministerial posts, including the powerful finance and justice ministries.

SPD leader Olaf Scholz, a 63-year-old career politician, is set to become Germany's next chancellor. Trained as a lawyer, he served as the mayor of Hamburg for six years before being appointed federal finance minister and vice chancellor in 2018 as part of Merkel's fourth government. During the election campaign, the SPD portrayed Scholz as a level-headed statesman who would be Merkel's natural successor.

Greens leader Annalena Baerbock is set to become Germany's first female foreign minister. She has repeatedly urged a harder line on China, but it remains unclear how far she can go considering Germany's economic overreliance on that country. China is Germany's main trading partner, according to Destatis, Germany's official statistics agency. Baerbock surely will face tremendous pressure from German industry to maintain the status quo on China.

FDP leader Christian Lindner, a hawk on fiscal policy issues (he places great importance on keeping government spending under control), will become finance minister, Germany's most powerful office. He has no background in business or finance and has never run a government ministry. Lindner, who is opposed to tax increases, wants to improve conditions for private investment in Germany. He has been a critic of Merkel's open door migration policy, and favors limited government and less regulations, positions that are the polar opposite of his coalition partners.

Evaluating the Coalition Agreement

Analysts and commentators generally agree that Germany's next government will face tremendous challenges in working together to turn its plans into reality. Many have asked how the coalition will pay for its policy program.

The head of the German Institute for Economic Research (DIW), Marcel Fratzscher, estimated that the coalition plans will cost at least 500 billion euros. In an interview with Rheinische Post, he said:

"The coalition agreement not only does not resolve the contradiction of tax cuts, compliance with the debt brake [Schuldenbremse, a constitutionally enshrined debt limit] and higher government spending but intensifies it. The financing of the social systems, especially the statutory pension, whose costs will explode in the future and require early countermeasures, also remains unsolved."

The director of the German Economic Institute (IW), Michael Hüther, agreed:

"When it comes to money, the coalition agreement lacks specifics. It is completely unknown how the coalition will finance all of its plans."

Writing for Politico, Karl Mathiesen and Aitor Hernández-Morales noted that the incoming coalition's plans to decarbonize Germany come with a catch:

"The three parties aiming to form the next German government just announced one of the most ambitious transitions away from fossil fuels in the world.

"But there's a dirty reality to pledges of 'ideally' ending coal use by 2030, scrapping combustion engine cars by 2035 and aligning all government policies with the goal of limiting global warming to 1.5 degrees — Germany will continue to rely on natural gas and nuclear power for many years....

"First is the problem of how to finance the transformation of Europe's largest economy....

"Then there's the problem of how to get rid of coal — which generated 27 percent of Germany's electricity in the first half of this year — in just eight years. That's much faster than the previous target of 2038, which already caused howls of outrage in Germany's declining coal regions....

"An even bigger issue is how to power Germany during the transition.

"The coalition proposes a 'massive' expansion of clean energy by raising the current goal of having renewables account for 65 percent of electricity generation by 2030 to 80 percent by the end of the decade....

"But clean energy won't be enough to cover demand by 2030, and that means the coal phaseout will oblige Germans to embrace two things they love to hate: Russian gas and French nuclear energy."

Commentator Roland Tichy criticized some of the social aspects of the coalition agreement:

"This coalition wants to change Germany. Marginal groups who are at home with the Greens are favored, refugees are given the right to vote after three years, large areas of nature are sacrificed to wind turbines. .... The coalition agreement reads like the paper of a Greens party congress. There is constant talk of transformation, hardly an area of ​​life in Germany that should not be changed, gendered and socially rebuilt from above.

"In chapters there is talk of 'queer ways of life' that should be promoted, protected and subsidized; of Muslims whose persecution has ended and of immigrants who receive citizenship after three years who should also be constantly promoted. Families of those who have lived here for a long time do not matter. It is a coalition agreement for 'rainbow families,' not for those who used to be called normal people: they will be transformed away....

"What is said about dwindling internal security and the increase in extreme violence also reads like a mockery. Gang rape and threats from knife attacks are offset against bicycle theft, so that one is led to believe: 'Germany is one of the safest countries in the world. We want to make it even safer.' But the police are not being strengthened for this.

"In future, the task of the police is no longer to prosecute and prevent criminal offenses, but to give politically correct preference to certain groups of offenders, who should be the subject of training courses....

"Reality is a foreign word. Inflation? Crisis on the Polish border? Energy shortages? Unemployment? Budget deficits? Not an issue. The main thing is that grazing animals and humans make room for the wolf."

Politico's Matthew Karnitschnig described the coalition agreement as an "aspirational document" which serves as a "marketing prospectus" that party leaders can use to sell the deal to their bases. He added:

"One of the most striking features of the coalition's sales pitch is how much space it devotes to progressive causes. The parties say they want to lower the voting age to 16, legalize cannabis and make it easier for foreigners not just to become German, but to have dual citizenship. Those are all red-meat issues for conservatives, especially the citizenship plan, suggesting that Germany could soon see a return to the divisive migration debates triggered by the refugee crisis in 2015.

"If that's not enough controversy, the parties have also resolved to tackle the minefield of gender identity. The pact's chapter on 'queer life' is nearly three times as long as the section on Jews, a fact that prompted raised eyebrows in some quarters given the recent surge in anti-Semitic attacks in Germany....

"Given the central role of the Greens in the proposed coalition, it's not surprising that climate policy is a dominant theme. What is surprising, however, is how unrealistic some of the targets are.... Keep in mind that Germany's renewable push has already left the country with some of Europe's highest electricity prices. With inflation already rising and working people complaining about their heating bills, accelerating the coal pullout could soon prove politically untenable....

"The Bundesrat is Germany's federal upper chamber, where the 16 states have a big say on important legislation. Without it, the coalition's agenda is nothing more than a pipe dream. Trouble is, the three parties don't have anything close to a majority there, meaning that they will need buy-in from the conservative Christian Democrats (CDU) on all of their big projects....

"If there's one thing that Merkel's tenure should have taught her successor, it's that in Germany's modern politics, nothing goes according to plan. None of the issues that dominated Merkel's time in office, whether the banking crisis of 2008, the European debt crisis, refugees or the pandemic, were mentioned in any of the carefully prepared coalition agreements. There's little reason to believe Scholz will have any more luck.

"And as with Merkel, he will be judged not according to how many chapters of the coalition agreement he managed to pass, but on his leadership when the Scheiße hits the fan."

Writing for the UK-based The Spectator, Michael Lynn noted:

"The Social Democrat leader Olaf Scholz... has put together an unlikely grouping of the Social Democrats, a lumbering left-of-center, trade union party with a rising Corbynista wing, the Greens, and the pro-business, pro-market Free Democrats.

"In reality, none of them really agrees on anything very much except that they think it is about time they had a go at running a ministry or two. The platform for government is likely to be a bland mix of infrastructure spending, phasing out coal power, and slightly easing the debt brake that limits the ability of any German government to borrow money. Here's the problem, however: the new government is bad news for Germany.

"The dynamics of the European bloc are in a rare state of flux. Under Mario Draghi, Italy has embarked for the first time in a generation on serious reforms. It has also skillfully negotiated the lion's share of the European Union's Coronavirus Rescue Fund, allowing it to turbo-charge its economy with lots of money borrowed from other people. The result? Italy is forecast by the IMF to expand by 5.8 per cent this year.

"Across the border, France's president Macron gets plenty of flak, not least in the UK, and his record as a reformer has been tepid, to put it mildly. And yet he has managed to inject some entrepreneurial vigor into the French economy and spent lavishly enough to keep demand growing. The IMF forecasts it will grow by more than six per cent this year.

"But Germany? With a declining auto industry, which accounts for ten per cent of total GDP, few digital start-ups, and a reliance on exports to China, it is only forecast to grow by 3.1 per cent as it struggles to recover from the pandemic. With a fresh lockdown looming, it may not even reach that.

"We are used to the cliche that Germany is the euro-zone's strongman, with the mightiest economy, easily outpacing the crisis-prone South. And yet that view is increasingly out-of-date. Germany is in danger of turning into the weakest major economy in the bloc; as that happens, power will inevitably shift from Berlin to Paris and Rome.

"Sooner or later, Germans will vote for a Chancellor who will reform the economy, and get the economy moving again. But it won't be Scholz, and it won't be the fractious coalition he unveils today. It will condemn the country to the slow lane."

Writing for Eurointelligence, Wolfgang Münchau, a veteran analyst of European affairs, expressed skepticism about the coalition:

"I find it hard to square what I know to be the ambitions of the traffic lighters [Greens and FDP] with what I know about Scholz. Something will have to give here. Maybe Scholz will go through a transformation. But I really struggle to see him standing up to Vladimir Putin when he threatens to cut off Germany's gas supply. Will he be telling the Russian leader that the future of Nord Stream 2 now rests squarely with independent regulators, the European Commission, and possibly the Court of Justice of the EU? Will he tell President Xi Jinping that Germany's solidarity is with the government of Lithuania and MEPs subject to Chinese sanctions, rather than German exporters? Angela Merkel did not."

The Editorial Board of the Wall Street Journal wrote:

"Germans declined to endorse any one politician, party or platform in their election in September—and that's the government they're getting in the coalition agreement unveiled Wednesday. Europe's largest economy will be led by a consortium of Social Democrats, Greens and free-market Free Democrats, and don't ask where they're heading.

"The new chancellor to replace Angela Merkel will be Olaf Scholz, leader of the center-left Social Democratic party (SPD) and finance minister in Ms. Merkel's administration. His relative success in the September poll, reviving a party many had written off after a poor showing in 2017, was built on a perception he'd deliver a little change after the Merkel era but not too much. The coalition agreement he's crafted confirms that perception.

"On the policy merits, the most important elements of the coalition deal concern climate. The parties have agreed to phase out coal-fired power by 2030 and to encourage the use of electric vehicles. This was the price Mr. Scholz had to pay to keep the Greens on board.

"This is popular with German voters, despite previous rounds of climate subsidies, taxes and regulations that are driving German energy prices to the highest in Europe. Will these policies remain popular if prices keep rising? At least the new government means voters will understand the Greens are responsible if and when that political bill comes due....

"The personnel in the new government are likely to matter more than the policy program. FDP leader Christian Lindner will take charge of the Finance Ministry, allowing him to exercise restraint on the budget and represent Germany at European Union meetings as leaders debate greater fiscal interventions.

"Green co-leader Annalena Baerbock will become Foreign Minister, from which vantage she can reinforce her party's displeasure with human-rights abuses in Russia and China. Policies might not change much, including on Russia's contentious Nord Stream 2 gas pipeline, but a sterner tone would be a modest improvement over Ms. Merkel.

"If this all sounds lacking in ambition, that's because it is.... Germans voted as if they want a government that would sit out major arguments about the country's economic or strategic direction. Voters' wish has become Mr. Scholz's coalition."

The UK-based Financial Times noted:

"The advantage of Germany's long-winded coalition talks is that much of the difficult bargaining has now been done. But it remains to be seen how much will survive the challenges of office, not least an alarming fourth wave of Covid-19 infections and deaths that is sweeping across the country.

"There are real incompatibilities between the three parties' electorates, in particular the FDP and the other two.... Green and liberal foreign policy thinking is visible in a program whose tone on Russia, China, and the rule of law is sharper than what the rest of Europe had learnt to expect from Berlin under Merkel. But in practice they will face resistance from the SPD, which was after all part of the outgoing government. Inevitably some voters will feel betrayed."

The London-based magazine, The Economist, concluded:

"Perhaps the biggest worry about the new coalition is that it may spend too much of its time arguing. On many issues, Mr. Scholz can expect his liberal partners to pull in one direction, and his Green partners in another. The laboriously hashed-out plan provides a baseline of agreement, but there will always be things it failed to foresee, or simply ducked. Covid-19 is again raging in Germany and Vladimir Putin is a menace. But the methodical and disciplined way the three parties have worked through their differences gives reason to hope that they will be able to go on doing so. Viel Glück! [Good luck!]"

Soeren Kern is a Senior Fellow at the New York-based Gatestone Institute.

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